The topic of the UK’s prize draw regulations has been thrust back into the spotlight after an exchange between two MPs, one a cabinet minister.
Last week, Dan Tomlinson MP, Exchequer Secretary to the Treasury, responded to a query around prize draw taxation from fellow Labour MP Maureen Burke.
In his response, Tomlinson reiterated that prize draws are not exempted from VAT. This has shone a light back on the conversation around prize draw regulations, something which the regulated lotteries industry has been campaigning on in recent years.
“HMRC confirms that prize draws offering both paid and free entry routes are not eligible for VAT exemption and paid entries will be subject to VAT at the standard rate of 20%,” Tomlinson said.
Prize draws have become increasingly popular in the UK over recent years, particularly house draws like Omaze and Raffle House. Participants buy a ticket with the prize being a home, often worth multiple millions of pounds.
Other companies have been involved in the prize draw space for some time. Broadcaster ITV has run holiday and car giveaway competitions for some time, for example, and is now expanding into more traditional gambling verticals.
However, the regulated lottery industry has never been entirely happy with the operations of these prize draws, and neither have gambling harm treatment charities like GambleAware.
The Lotteries Council has been particularly vocal in calling for prize draws to be held to the same regulatory standards of lotteries, within the framework of legislation like the 2005 Gambling Act.
Prize draws are still subject to some regulations, however. The Department for Media, Culture and Sport (DCMS), which oversees UK gambling, introduced a new Code of Conduct for prize draws last year, for example.
According to Richard Williams, an iGaming lawyer with Keystone Law, the exchange between MPs Burke and Tomilinson has ‘materially shifted the VAT landscape for prize draw operators’.
“This answer has reignited debate across the prize draw sector, particularly as this appears to have been triggered by the issue of the DCMS Voluntary Code of Conduct,” he wrote on LinkedIn.
“The reality is that the market is divided: some operators account for hashtag#VAT on paid entries, but many do not.
“The position is far from straightforward. If VAT is chargeable on entries, input VAT recovery would follow, significantly affecting margins, pricing structures, historic accounting treatment, and competitive dynamics.”